April 16, 2010

D.C. Circuit Gets Interested in Fee Disputes

The role of arbitration in fee disputes between law firms and their clients is suddenly front and center for the U.S. Court of Appeals for the D.C. Circuit. The court now has at least two such cases before it.

On April 9, the D.C. Circuit docketed an appeal filed by former Zuckerman Spaeder client James Auffenberg Jr., who had hired the firm after he was indicted in 2007 for allegedly dodging millions in federal taxes. After winning an acquittal for Auffenberg last year, Zuckerman filed a suit against him alleging that he hadn’t paid $834,000 in legal fees.

In January, almost a year into the litigation, Auffenberg’s lawyers moved to stay the case pending arbitration before the D.C. Attorney/Client Arbitration Board.

According to Auffenberg’s June 2008 engagement letter with Zuckerman, which is included in the request for arbitration filed with the board, Auffenberg agreed to pay partner Paula Junghans $675 per hour and an initial retainer of $100,000, which was to be replenished monthly. The letter also listed ranges of hourly rates for each class of timekeepers at Zuckerman: Partners charged $365 to $825; associates $200 to $475; and legal assistants $145 to $265.

Auffenberg later agreed to amend the engagement letter to raise the retainer to $500,000.

Auffenberg’s request for arbitration contends that he only agreed to pay $1.5 million in total, and the firm improperly exceeded that amount by about $843,000.

Judge Reggie Walton of the U.S. District Court for the District of Columbia denied the motion to stay pending arbitration in a March 18 order, citing “the defendant’s failure to invoke arbitration prior to actively participating in this litigation.”

One day later, Auffenberg’s lawyers, Thomas Duckenfield III and David Holzworth of Adorno & Yoss, filed for an interlocutory appeal. In a subsequent motion to stay the district court case pending the appeal, Duckenfield argued that by failing to deny the motion to stay the case pending arbitration, Walton had issued an order that was “hostile to arbitration.”

On April 8, Walton stayed the case pending “instructions by the District of Columbia Circuit.” The D.C. Circuit has yet to set briefing deadlines or an argument date for the case.

Zuckerman partner Francis Carter and associate Douglas Miller, who are handling the case, did not return calls for comment. Holzworth said neither he nor Duckenfield could comment on the case.

The other fee dispute now before the D.C. Circuit pits Winston & Strawn against its former clients Harold Doley and Doley Securities. At issue in that case are what rates Doley agreed to pay Winston & Strawn and whether the case should be in arbitration. The dispute, which The National Law Journal wrote about here, is set for oral argument before the D.C. Circuit on May 7.